Don’t Just Listen To The Experts


You may have heard of U.S. ‘celebrity’ experts Nouriel “Dr. Doom” Roubini, Robert Shiller, and Meredith Whitney. But are you familiar with Noreena Hertz?

While Roubini, Shiller, and Whitney were pounding the table to try to wake people up in the U.S. prior to the financial crisis, Hertz was doing the same in the U.K.

Her work focused on the unsustainability of the flavour of capitalism that was running the show prior to the crisis. And, as a 2009 Fast Company article highlighted, she seemed to have a pretty good idea of what was going to happen. In her 2004 book, The Debt Threat, she wrote:

Is there reason to believe that we are soon going to see more defaults on commercial debt, emblematic of a widespread financial crisis? I believe that within the next five years, yes, we will see this.

What does Hertz have to say now? In November 2010 Hertz gave a warning of yet another danger: Listening to experts.

Total eclipse of the brain

In her talk, Hertz referenced a brain study, and though she didn’t name names, we’re assuming she was talking about the work of Jan Engelmann, Monica Capra, Charles Noussair, and Gregory Berns at Emory University.

The researchers hooked participants up to an fMRI scanner and watched their brains at work as they made a financial decision. But the catch was that some participants were given “expert” advice on the matter while others had to make up their minds on their own.

Not all that surprisingly, the participants given the expert advice were more likely to go the route that the expert suggested.

Shockingly though, the researchers also found that:

Brain activations showing significant correlations with valuation … were obtained in the absence of the expert’s advice … in intraparietal sulcus, posterior cingulate cortex, cuneus, precuneus, inferior frontal gyrus and middle temporal gyrus. Notably, no significant correlations with value were obtained in the presence of advice.

In plain English? When given expert advice, participants’ brains shut down.

If we lived in a world where experts were always right, perhaps this wouldn’t be something to lose sleep over. But experts aren’t always right — not by a long-shot.

An expert solution

Hertz by no means suggested that we do away with experts (after all, she’s an expert). Instead, she recommends three steps to alleviate the problems that come with expert advice.

Now we generally try to limit the amount of horn-tooting that we do, but we can’t help but toot the horn for The Motley Fool here.

Why? Because The Fool does a tremendous job practicing all three of the points that Hertz outlined — and we’ve been doing this from Day One in the U.S., and we’ll be doing the same thing here in Australia.

So with that, let’s take a look at Hertz’s guide to protecting yourself from expert advice and how The Fool can help you do just that.

1) Challenge experts. When we treat experts like unassailable bastions of truth, wisdom, and general awesomeness, our brains will shut down faster than a nightclub when Susan Boyle comes on.

However, The Fool has always been about challenging the so-called experts, whether they be analysts on Wall Street, pundits on TV, or academics in their ivory towers.

Sure, we still like to hear what the experts have to say, but that hardly stops us from calling out experts on a regular basis. Heck, over in the U.S. one of our analysts even called out Warren Buffett and Berkshire Hathaway on their derivatives lobbying.

2) Go ahead, disagree. In Hertz’s words we need to “create the space for managed dissent.” She notes that by breaking down ideas and exploring wild, even heretical notions, we will become smarter and make real progress.

Once again, The Fool is all over this. Our writers may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

For example, last year when many people were talking seriously about a BP bankruptcy, some of our U.S Fool writers stepped out to call the company a buy at the time.

And these are hardly flukes or one-off occurrences — The Fool truly believes that the best ideas will surface when we allow space for all views to be considered (even if they might be proven wrong).

3) We’re all experts! “Democratise expertise” Hertz suggests. While we’re used to kowtowing to people in white coats and fancy suits, she points out that “normal folks” possess a surprising amount of expertise.

‘Community’ has always been a huge part of the Motley Fool. Tom and David Gardner, our founding brothers, for all their investing prowess, believe the power of many people eclipses the knowledge and expertise of just one person.

Get down on it

If there’s one takeaway from all of this though, it’s the need for your involvement. Sitting back and flipping off higher thought isn’t going to work anymore.

If you want to take action, taking control of your own financial future, you can start right now. The Motley Fool is here to help.

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